Overtime Pay and White-Collar Exemptions: Seeking Clarification in Light of Recent Revisions

by Paul Gatz February 21 2008, 10:38

I.     Introduction

The New York Times recently asked, "In today's perpetual workplace, where downtime has merged with work time, where you can carry your office in your pocket, where collars are no longer distinctly blue or white, how does one measure overtime?" [1] Such questions lead to others, concerning the purpose of overtime pay, the reasons for distinguishing between types of employees, and the role the federal government ought to play in resolving the growing inconsistencies and confusion of the complex structure of overtime law. This article examines recent changes to the overtime laws concerning exemption of white-collar workers and any effects, beneficial or burdensome, that they may have on individual workers and the economy as a whole.

II.     Background

The Fair Labor Standards Act ("FLSA") was enacted in 1938, as a substantial piece of the New Deal response to the economic and social damage done by the Great Depression. [2] The FLSA rules on overtime served as incentives for employers to shorten the work week, raise employee compensation, and hire more employees. [3] At the time of enactment, the rules concerning who was exempt and who was non-exempt from receiving overtime pay adequately corresponded to the clear division between white-collar and blue-collar workers. [4] However, in the sixty years since the Act's debut, the national economy's shift from industry to service has created a situation in which the line between white-collar and blue-collar has been obscured; the exemption rules no longer correspond closely to that categorical distinction. [5] In 2003, the Department of Labor proposed, and in 2004, Congress approved, new exemption rules to clarify the growing confusion. [6]

The old FLSA rules on overtime exemption involved a three part analysis: a salary basis test, a salary level test, and a duties test. [7] The salary basis test required that the employee was paid at a predetermined basis during a pay period regardless of the quality or quantity of his work; if so, the employee qualified for overtime pay. [8] The salary level test automatically qualified an employee for overtime pay if the employee earned less than a specified base indicative of a managerial or professional status. [9] The duties test looked into whether the employee's position could be more properly characterized as managerial, professional, or administrative work, taking into account the extent of "independent judgment and discretion" involved in the position and the level of education required for the position. [10]

III.     New Overtime Exemption Rules

Under the new rules, the salary basis test remains unchanged in its essentials, and the compensation amount required for the salary level test has been raised. [11] The duties test has simplified and standardized the test for each exemption, looking into the primary duty of the employee's position. [12] As under the old rules, an employee with primary duties involving management of an enterprise, as well as direction and supervision of two or more other full time employees, falls squarely under the executive exemption. [13] The new rules add that an executive must have the authority to hire, fire, and promote employees. [14] Employees falling under the administrative exemption retain the same essential requirements. [15] Their primary duties involve the performance of office or non-manual work and the exercise of discretion and independent judgment. [16] The professional exemption still involves primary duties that require either knowledge of an advanced type or, for creative professionals, invention, originality or talent. [17] The new rules no longer distinguish advanced knowledge from "knowledge obtained from a general academic education, an apprenticeship or from training in the performance of routine, manual, or physical process." [18]

IV.     Impact and Perception

The overtime exemption rules have been a highly politicized issue. [19] Accordingly, the responses to the new regulations have ranged from laudatory to dismissive. One argument contends that the clarity of the new rules will save employers from the costs of litigation arising from uncertainty as to exemptions under the old rules. [20] As a result, "savings will be passed onto workers in the form of higher salaries or increased hiring which will contribute to the fulfillment of Congress's original goals in passing the FLSA." [21] However, according to some estimates, "[l]awsuits brought under the Fair Labor Standards Act, by employees claiming they had been illegally declared ineligible and demanding back overtime pay, have increased by 50 percent since the changes were made, mostly in the form of large class-action suits." [22]

Before considering any hasty post hoc ergo propter hoc analysis, it should be noted that the new regulations are not retroactive and therefore most recent decisions still apply the old rules. [23] Moreover, "where courts have applied or referenced the new regulations, the courts have found the regulations to confirm or be generally consistent with the rules of the prior legislation." [24] At this pace of judicial interpretation, the practical effects of the change in exemption regulation, if any, may not present themselves for some time. The increase in litigation may merely be a result of the necessity of establishing case law precedent to interpret the new regulations, or it may be that the complex structure of overtime exemption law particularly lends itself to uncertainty and confusion. "The scope of FLSA regulations is defined by complex body of federal regulations, Department of Labor guidance materials, and case law precedents", as well as "[a]nalogous state and municipal laws and regulations." [25]

V.     Conclusion

It is likely too soon to determine what practical effects, if any, the minimal changes in overtime exemption rules will have on workers or the economy. However, there still appears to be an open question as to how the increasing complexities and vagaries of the contemporary workplace can be resolved within the still dominant paradigm of overtime exemption. Perhaps what is required is a radical reassessment of the purposes and practices of overtime pay. Is it a organism of economic stimulus from a bygone day that has ossified into a sense of entitlement lacking any economic benefit or is it an acknowledgement of the individual worker's sense of ownership of his time and the value of his production, coupled with a social commitment to and responsibility for the welfare of the economy on an individual basis? Is the purpose served by distinguishing between white-collar and blue-collar employees still relevant? If not, what would be an effective alternative distinction? These questions will not soon be easily answered; indeed, answers to these questions would then breed others to replace them. That much, at least, is certain.

Endnotes

[1] Lisa Belkin, O.T. Isn't as Simple as Telling Time, N.Y. TIMES, Sept. 20, 2007, at G2.

[2] Regan C. Rowan, Comment, Solving the Bluish Collar Problem: An Analysis of the DOL's Modernization of the Exemptions to the Fair Labor Standards Act, 7 U. PA. J. LAB. & EMP. L. 119, 123 (2004).

[3] Id.

[4] Belkin, supra note 1.

[5] Id.

[6] Adam T. Klein et al., The DOL's New FLSA White Collar Exemption Regulations and Working with the DOL on FLSA Actions, 10 EMP. RTS. & EMP. POL'Y J. 459, 460 (2006).

[7] Rowan, supra note 2, at 125-26.

[8] Id. at 126.

[9] Id. at 128.

[10] Id. at 129-31.

[11] Klein, supra note 6, at 461-63.

[12] Id. at 465.

[13] 29 C.F.R. § 541.100 (2005).

[14] Id.

[15] Klein, supra note 6, at 466.

[16] 29 C.F.R. § 541.201 (2005).

[17] 29 C.F.R. § 541.300 (2005).

[18] Klein, supra note 6, at 467-68.

[19] Rowan, supra note 2, at 121. ("[E]mployers seek to lower costs by broadening exemptions from labor standards requirements, while employees seek to retain protection by remaining within the purview of the FLSA.")

[20] Id. at 132.

[21] Id. at 138.

[22] Belkin, supra note 1.

[23] Klein, supra note 6, at 460.

[24] Id.

[25] Mary Beth Hogan & Jyotin Hamid, FLSA Collective Action Lawsuits: An Accelerating Trend, EMP. BENEFIT PLAN REV., Oct. 1, 2007, at 9.

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